The Risks of Sharing Your Idea

It's every entrepreneur's worst nightmare: Someone has stolen your idea. How can you really protect yourself?

I am often asked by clients how to protect their ideas. The best
way, of course, is to keep them secret. Any facetiousness aside, it
is a sincere recommendation. Often people talk about their ideas to
brag, brainstorm and make themselves feel as if they're adding
to discussions. But these aren't good enough reasons for
disclosing information you need to protect. The next time you feel
the desire to talk about your great idea, consider the following
guidelines:

When to disclose information: You should disclose
information in increasing amounts only as the deal or negotiation
progresses. Make sure that the balance of power in the deal remains
relatively even in terms of oral commitments or commitments through
information disclosure, money or contracts. Be sure to keep careful
notes on what, when and where information was disclosed and who
else was present at the meetings. These records can be extremely
helpful if you ever end up in court.

How much to disclose: Always disclose the minimum
necessary to close the deal or gain the investment without being
fraudulent or misleading. This allows you to maintain the most
control over your product or idea, as well as protect your options
in case you need to change the timeline or details later.

To whom to disclose: Consider who you're talking to
about your product or information. Is the party a competitor who
would greatly benefit from the stealing the idea or product, a
customer who will be helped by the idea or product, a partner whose
own business would be complemented by your success, or an employee
who can gain a promotion by taking the idea as his or her own?

A surprising fact is that the party receiving the information is
often taking a greater risk than the party disclosing information.
A good example of this risk is a venture capital group. Those
seeking an investment are often dismayed to discover that VCs
routinely refuse to sign confidentiality agreements and sometimes
make the submitter sign an agreement stating that if a VC client
later develops something that looks like his or her idea, the
submitter agrees not to challenge it.

Consider the VC's perspective. VCs are in the business of
hearing ideas and backing the ones they think are winning. If a
venture capital firm were to agree to keep a submitter's
information confidential, it would be agreeing that if any of its
other investments were to come up with a similar product or
service, the submitter might be able to claim ownership of it-even
if that product or service was developed by people who had never
even heard of or seen the submitter's information, or even if
that product or service was in development prior to the
submitter's disclosure to the VC. As the risk is high for both
sides in this situation, if you're seeking funding, you're
usually the less-powerful party and you'll often be forced to
assume more risk.

For the disclosing party, the risks can also be great. The
disclosing party risks disclosure of such information to its
competitors, disclosure of the information to the public and/or use
of such information to compete or gain market advantage against the
disclosing party.

Deciding how and when to disclose information is your first step
in risk assessment for your business. With some thought, care and
record-keeping, it can be managed effectively.

Note: The information in this column is provided by the
author, not Entrepreneur.com. All answers are general in nature,
not legal advice and not warranted or guaranteed. Readers are
cautioned not to rely on this information. Because laws change over
time and in different jurisdictions, it is imperative that you
consult an attorney in your area regarding legal matters and an
accountant regarding tax matters.

Judith A. Silver, Esq., is the CEO and founder of Silver Law
Inc., a technology and business law practice, and Coollawyer Inc., a
legal publishing company on the Web. Prior to starting her
companies, she served as in-house counsel at Adobe Systems and
Sabre/Travelocity.com. She holds a bachelor's degree cum
laude from Cornell University and her juris doctorate from the
University of California, Hastings College of the Law, in San
Francisco.